The Australian labour market remained relatively stable in May, with the unemployment rate holding steady at 4.1%. Despite the economy shedding 2,500 jobs during the month, most key indicators, including the underemployment rate and the number of hours worked, point to continued labour market resilience.
In trend terms, the number of employed people increased by 28,000, bringing the total number of employed people to 14.64 million. The full-time job market remained strong, with full-time employment rising by 20,500, though part-time jobs fell by 41,100 during the month.
This imbalance between full-time and part-time employment reflects the volatility that has characterised recent readings, but overall, employment growth remains on a solid upward trajectory, with a year-on-year growth rate of 2.3%, according to Westpac analysts.
The participation rate, which tracks the percentage of working-age people either employed or actively seeking work, held steady at 67%.
This marks the fourth consecutive month the unemployment rate has remained at 4.1%, a sign that labour market conditions remain relatively unchanged from levels observed in late 2023, despite various economic headwinds.
Mixed signals in sectoral performance
The decline in part-time jobs in May is notable, but it follows a strong surge in employment in April, which saw an addition of 87,600 jobs. Westpac’s Ryan Wells noted that the decline in May was in line with expectations for a pullback, following the strong performance of April.
"In context, this decline comes off the back of a surge in April, so some degree of payback was to be expected," Wells said.
Despite the small drop in employment, Westpac highlights that the three-month average growth rate remains stable, and employment growth continues to be robust overall.
Moreover, average hours worked bounced back by 1.1% in May, recovering from previous disruptions, including the Easter holidays and ex-tropical cyclone Alfred.
This rebound in hours worked is another sign of a healthy labour market, contributing to a modest drop in the underemployment rate, which fell to 5.9% from 6%.
Policy implications for the RBA
The latest data reinforces the view that the labour market remains tight, but not so much that it will compel the Reserve Bank of Australia (RBA) to take immediate action.
With the unemployment rate steady at 4.1% and the participation rate unchanged, the RBA’s policy stance remains relatively cautious. According to Westpac, the labour market is still considered tighter than what would be consistent with full employment.
Despite this, the RBA is expected to take a patient approach to policy adjustments. Wells noted that while the current state of the labour market does not immediately signal the need for rate cuts, the RBA is likely to wait for the June quarter’s inflation data before moving on any further rate decisions.
Westpac maintains its view that the next rate cut is most likely to occur in August, as the RBA seeks to balance risks to global and domestic growth while remaining mindful of inflation pressures.
Outlook: Mixed but stable growth
The May labour force data suggests that while employment growth has softened slightly, Australia’s labour market remains on a steady footing. The unemployment rate's stability over the past year and a half indicates that the economy is still generating enough jobs to meet the demand for workers, even as part-time roles fluctuate.
With average hours worked trending upward and underemployment continuing to decline, the labour market's overall health suggests that the RBA can afford to adopt a cautious policy approach in the months ahead, Westpac said.
As the economy continues to adjust to global economic conditions and domestic inflationary pressures, further signs of resilience in the labour market will be crucial in shaping the RBA’s decisions for the second half of 2025.